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- 1. Progresso: Ready-to-Serve the Industry Margaret Gentile Satoko Hirai Chris Powers Matt Redmond Alex Sirkin Steve Wang
- 2. Agenda • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 2
- 3. Executive Summary • High household penetration but moderate growth - Single digit growth in ready-to-serve (RTS) soup industry • Two-horse soup race – Progresso and Campbell’s – Brand not important to customer • Fierce position competition • Still, more pressure – Low price private labels – Commodity inflation – Demands from distributors, especially Wal-Mart 3
- 4. • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 4
- 5. Canned Soup: A $3.1 Billion Industry Units of canned soup sold (2007): ~2.2 Billion1 Average price of canned soup (2007): $1.431 2 2 Sales by Type RTS Sales by Brand 5% 5% 7% 15% Ready-to-serve Campbell's wet soup Progresso Condensed wet 49% 50% soup Healthy Choice Private Label 35% Ready-to-serve 35% broth Other RTS Dominates Progresso: Canned Soup Strong #2 Consumption 1Calculated with equivalent unit data from AC Nielsen 5 2Mintel Report: Soups – US -- 2008
- 6. Overview of the Soup Market Trends Changes • 4-5 % growth/year • Key targets (2008-2012) 1 – Health-conscious – “On the go” people • Wal-Mart’s share of sales increase 1 • “Fresher is better” • Private label brands Biggest Worry growing fastest 1 • Raw materials costs 2,3,4 1 Mintel Report: Soups – US – 2008 2 Form 10-K, General Mills and Campbell Soup Company 3 “Soaring grain prices affect many food costs” Seattle Post-Intelligencer, 15 Mar 08 6 4 AC710 Accounting Presentation – General Mills by Group 6 (“Six Sigmas”)
- 7. • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 7
- 8. Progresso’s Fit with General Mills Progresso Progresso Sales A&M Budget NPV4 Sales FY 20081 as % of GIS Growth3 Sales2 $565 Million 4% 16% $621 Million • Emphasis on wholesome product – Removal of MSG – Reduced sodium line • History of innovation – Birth of Progresso Light from G-WIN 5, 6 • Commitment to Corporate Social Responsibility – Susan G. Komen can 1 Data from AC Nielsen 2 For fiscal year 2008: total sales of Progresso sales from AC Nielsen divided by net sales on GIS 10-K 3 Year-over-year growth from 2006 to 2007; Facenda, Vanessa L. “General Mills Outlook ‘Healthy’ with New Products, Increased Ad Spend. Brandweek .com Feb. 22, 2008 4 See Appendix, Slide 25 5 General Mills G-WIN website http://www.generalmills.com/corporate/open_innovation/index.aspx 6 Jusko, Jill. “Happy Anniversary for General Mill’s G-WIN” Industry Week, 1 Jul 2008; Obtained through www.highbeamresearch.com 8
- 9. Competitive Analysis 1 2 3 Brand • Competitive pricing • “Bottom-line driven • Lower price, Strategy during peak season pricing”4 comparable taste • Value-add • Premium • Sentimental • Low-cost Position • Healthy • Natural • Effective use of • Brand recognition • Same-store promotions • Clear message promotion Strengths • Identify market • Innovator • Low-cost trends • High margins • Innovator • Concentrated • Concentrated • Smaller selection Weaknesses customer base customer base • Cannibalization • Price pressure 1http://www.bettycrocker.com/products/progresso/Progresso-Product-Landing-Page.htm 2http://www.campbellsoup.com/default.aspx 3http://www.roboticjelly.co.uk/discount-soup-can.jpg 4Michman, Ronald D., et al., The Food Industry: Marketing Triumphs and Blunders, Greenwood Publishing Group, 1998. P. 97-100. Other data obtained from Mintel Report: Soup (September 2008)
- 10. Progresso’s Pricing Strategy: Seasonal Aggressiveness Seasonality of Soup Sales Equivalent Unit Prices and Prices1 in 20071 $2.00 400 (Millions of Equivalent Units) Price per Equivalent Unit ($) $1.80 $1.60 350 Progresso Campbell’s 300 Canned Soup Sold $1.40 $1.20 250 Winter $1.46 $1.57 $1.00 200 $0.80 150 Spring $1.64 $1.70 $0.60 100 $0.40 Summer $1.84 $1.77 $0.20 50 $0.00 0 Fall $1.47 $1.53 Fall '05 Winter '05 - '06 Fall '06 Winter '06 - '07 Fall '07 Summer '05 Spring '06 Summer '06 Spring '07 Spring '08 Winter'07 -'08 Summer '07 Season Campbell's Private Label Progresso Volume: All Canned Soup 1 AC Nielsen
- 11. • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 11
- 12. Women Dominate Selection… Initiator Diet Programs Generation Z Gatekeeper Influencer Receptivity to Marketing & Advertising1 Baby Boomers Demographic Remember advertised products Shifts2 Generation X User 70% Decider Generation Y 60% 50% Hispanic Generation Z 40% Pay attention to Asian 30% commercials Black 20% 2008 10% White 0% 2050 (est) All Buyer Approver on Notice ads billboards 0.0% 20.0% 40.0% 60.0% 1Mintel Report: Soups – US – 2008 12 22008 US Census Bureau Report
- 13. …and Select Based on Flavor Criteria by Gender1 Criteria by Age1 Flavor Flavor Price Price Health Health Brand Brand 0% 20% 40% 60% 0% 20% 40% 60% All Female Male All Baby Boomers Generation X Generation Y NPS Progresso -57 Flavor carries the day in soup selection criteria Campbell's -62 Chunky -85 Net Promoter Scores for major labels/brands demonstrate 0% 20% 40% 60% 80% 100% consumer’s “brand agnostic” Promoter Passive Detractor selection criteria 13 1Mintel Report: Soups – US -- 2008
- 14. Targeted Ethnic Opportunities With chicken With noodles With beef Black and Hispanic populations shows an Cream-based above-average interest in chicken, noodle, and vegetable-based soups Vegetable/vegetarian With beans Black, Asian, and Hispanic With seafood populations show an above-average interest in seafood soups 0% 20% 40% 60% 80% 100% All White Black Asian Hispanic 14 1Mintel Report: Soups – US -- 2008
- 15. • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 15
- 16. Progresso Soup: Product Length and Depth Sales in SKUs2 Positioning 2007 Progresso Soup Sales by ($ Million)1 Product Line1 Traditional 26 Taste 253 4 weeks ending 12/01/07 Vegetable 17 Taste 109 Classics Low Rich and Sodium 12 Taste 91 Hearty 11% Low Light 8 Healthy 53 Sodium 12% 26 (launched Traditional Light 5 (11) Healthy 43% 8/2007) Total 74 531 Vegetable 2 Classics 19% • Partnership with Weight Watchers3 – 6 SKUs with 60 calories, 0 points Rich and Hearty – 5 SKUs with 70 – 80 calories, 1 point 15% • $100 million in sales in first year4 1 JP Morgan Analyst Report from Jan 08, 2008 2 http://www.bettycrocker.com/products/progresso/progresso-products.htm 3 http://www.generalmills.com/corporate/brands/product.aspx?start=P 4 http://www.wtopnews.com/?nid=111&sid=1483005
- 17. • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 17
- 18. Growth of Soup Sales via Mass Merchandising 2008 Soup Sales By Retail Channel¹ Soup Sales by Mass Merchandisers: Mass Merchandisers • 21% growth from 2006-2008¹ / Other 22% • $206 Million¹ Drug stores Primarily causes: 2% • Rising energy costs • Higher priced consumer Food stores 76% packaged goods • Uncertain economic conditions 18 ¹Mintel Report: Soups – US -- 2008
- 19. Distribution Margins Manufacturer Distributor Retailer Consumer 2 1 3 4 36% / $0.38 23% / $0.31 23% / $0.41 $1.77 GIS Variable Unit Cost of % Margin Selling Price Margin in $ Soup $0.67 36% $1.05 $0.38 1 http://www.generalmills.com/stream_image.aspx?rid=5119 2 http://www.supervalu.com 3 http://www.rsspieces.com/m/blogs/herrington/Kroger_New_Logo.jpg 19 4 http://www.generalmills.com/stream_image.aspx?rid=5119
- 20. • Executive Summary • Industry Overview • Company Analysis & Competitive Landscape • Customer • Product • Distribution Channels • Conclusion 20
- 21. The Road Behind, The Road Ahead Strengths Weaknesses • Going outside for innovative • SKU proliferation without technology in new products growth in shelf presence • Partnerships/first mover on • Market share trends • Long-term liquidity • Good turn-over on booked sales1 Opportunities Threats • Continue exploring healthy • Campbell’s push into eating options Premium offerings2 • Targeted ethnic-based • Private label growth marketing programs • Strong-armed by influential • Streamline future productions distributors3 via capital investments • Commodities prices and effects on inventory 1 AC710Presentation by Six Sigmas on General Mills; GIS: Financial Ratios. investing.businessweek.com 2Campbell’s Select Harvest Website URL: http://www.campbellsoup.com/select.aspx 21 3”Wal-Mart cuts food prices by up to 30%”, Mintel, 20 June 2008
- 22. Appendix
- 23. Margin Calculations From 10K % Gross General Unit cost Selling Price Margin (In $ Supervalu Kroger margin Mills Millions) General $0.67 35.7% $1.05 $0.38 Mills net sales 44,048 70,235 13,652 Supervalu $1.05 23.4% $1.36 $0.31 cost of sales 33,943 53,779 8,778 Kroger $1.36 22.9% $1.77 $0.41 gross margin 10,105 16,456 4,873 Consumer $1.77 gross margin % 22.9% 23.4% 36.7% Method: 1. Obtained 10K filings from Supervalu, Kroger, and General Mills and pulled the reported Net Sales and Cost of Sales. 2. Determined the gross margin as a percent of net sales and used these margins as the gross margin on Progresso soup (see Table on Right, Column 3). 3. Starting with $1.77 (obtained from AC Nielsen) for one can of Progresso soup, determined the unit cost for the retailer, distributor, and General Mills using % gross margins calculated in Step 2 to obtain $0.67 as the cost of one can of Progresso for General Mills. Assumptions: The % gross margin on a can of Progresso soup is the same as the average company % gross margin for all 3 channels. Supervalu and Kroger’ gross margins on soup are representative margins on Progresso soup for the food distribution and retail grocery industries.
- 24. Projected cash flows NPV Calculations in $ million $113.42 $115.79 $118.86 $112.14 $125.27 $128.62 r = 6.40% per year1 2009 2010 2011 2012 2013 2014 Year-end 2008 NPV of Progresso = present value of these expected cash flows = $621 million Projected Total Progresso Projected Sales of TABLE 2 Soup Sales % Gross TABLE 1 RTS Soup Projected Gross Profit Progresso Ex. 2008 ($ million) Margin Year Sales2 Gross Profit ($ million) ($ Million) ($ Million) ($ Million) General Mills 204.30 35.7% 113.42 2007 actual 1,609 532.0 112.17 Supplier 317.74 23.4% 94.36 2008 1,627 538 113.42 (projected) Retailer 412.11 22.9% 125.88 2009 (forecast) 1,661 549 115.79 Customer 538 2010 (forecast) 1,705 564 118.86 Method: 1. Calculated the market share of Progresso soup (33% of RTS, see 2007 data 2011 (forecast) 1,752 579 122.14 from Table 1) 2. Using the projected and forecast data for total RTS soup sales over 2008 – 2012 (forecast) 1,797 594 2013 found on Mintel, extrapolated the projected sales of Progresso over the 125.27 same time span (Table 1, Column 3) as a fixed percentage of total RTS soup sales using their market share percentage from 2007 (ex. in Table 1, Row 2: 2013 (forecast) 1,845 610 128.62 $1,627,000,000 x 0.33 = $538,000,000 projected Progresso sales) 3. For each year, calculated projected gross profit for Progresso from projected Assumptions: sales of Progresso using the margin analysis described earlier (see previous Cash flows (i.e. projected gross profit) occur at end of calendar year slide and Table 2) Prices of soup stay constant 4. Placed all projected gross profits per year (i.e. the projected cash flows from Progresso’s market share stays constant Progresso for years 2008 – 2013) in time line Consumer Sales at current prices 5. Consider 2008 as year 0. General Mills, supplier, and distributor margins all stay the same 6. Calculated the Net Present Value of all projected cash flows at r = 6.40% per Prime year rate is the appropriate interest rate measurement for Progresso year (the trailing five year average of prime rate from 2003 – 2008) as of Trailing five year average of prime rate (2003-2008) is representative of the average of prime rate (2009-2013) year-end 2009.
Editor's Notes
- This page will give audiences an outline of our presentation. We uses 4Ps,5Cs, and other concepts to analyze the canned soup industry and market and the Progresso brand. Main points: 88%* Household penetration rate but only 4-5%* growth rate. Low brand loyalty makes products position even more important. Potential threats from private labels. Pressure from commodity inflation and distributor.Mintel Report (US – Soups – September 2008)
- -Canned Soup largest component of soup industry*AC Nielsen (computed)-makes up 83.3% of sales-Ready to serve soup*MINTEL (Soup-US-September 2008): "canned or refrigerated soup not requiring additional ingredients“-85% of the market dominated by two companies:*Campbell’s the clear market leader, with Progresso a very strong number 2*MINTEL (Soup-US-September 2008): Last year Progresso was able to erode 1% of Campbell’s market share
- Wal-Mart's is growing in market share of soup sales*MINTEL (Soup 2008): 7.3% growth in Wal-Mart’s total share of food/drug/market salesPrivate Label growing fastest-*MINTEL (Soup 2008): 4.3% growth in Private Label sales, highest of all other brandsTargeting the health conscious-*MINTEL (Soup 2008): Campbell’s introduces sea salt for lower sodium content *MINTEL (Soup 2008): Progresso using Weight Watcher’s Points SystemTargeting people with little free time to prepare meals-*MINTEL (Soup 2008): Introduction of “thermos-style packaging” and ergonomic packagingMore consumers are looking for fresher options -*MINTEL (Soup 2008): Refrigerated fresh soup grows 12.3% last year
- Progresso accounted for 565 million in sales in 2008, which is roughly 4% of General Mills total sales, a significant portion for a company with so many different brands, making Progresso one of their more important product lines. The fact that general mills plans to grow the advertising and marketing budget by 16% further attests to this. Progresso, with an estimated NPV of 621 million, is a valuable brand in General Mills portfolio Progresso perfectly emphasizes general mills focus on wholesome brands, with hallmarks such as the reduced sodium line, and their campaign for MSG-free soups. Progresso is also illustrative of General Mills history of innovation The highly successful line of Progresso light soups was actually created from ideas submitted to G-Win, General Mills's R&D suggestion box that allows outside firms and individuals to submit new product concepts. Progresso is also used to highlight General Mills commitment to social responsibility with the Susan G. Komen can for breast cancer awareness
- The Progresso is the strong NO2 and grabbing market share from leader. They are aggressive at pricing and promotion, especially during peak season. At the other side NO1 Campbell soup cares more about sustainable growth and profits. They leverage brand power to help market. Private labels and generic are using low price to fight back.Progresso and Campbell are probably at the same position: healthy food. Progresso emphasis their overall wellness and premium, whereas Campbell concentrates on natural and brand connection. Private label of course try to cross the message that their products are value added, giving customers more choices and more bang for their bucks.Progresso's strength is their ability to identify market trends. Their promotion and innovation are also very successful. Whereas Campbell has strong brand history,they leashing the power to help their marketing, making their message clear. Private lables's strong points is their low prices and varieties of choices, given the low loyalty of customers.
- Progresso uses aggressive pricing strategies to compete with Campbell'sSoup is a seasonal product (shown by dashed purple lines)comparisons of equivalent soup prices by season: in summer, Progresso is consistently more expensive than Campbell’sduring soup season (fall/winter), Progresso actively underprices Campbell's to maximize market share during the periods of high volumeLook at prices in 2007:38 cent difference per equivalent can of Progresso between summer and winter
- DMU:Users across all ages and both genders 85% of consumer purchasing done by women (http://www.inc.com/articles/2003/01/25019.html), approximately 60% of grocery shopping (Mintel Report – Soup) Women:Significant changes in demographics over the coming 40 years, with explosive growth in the Hispanic population (~2x today’s figures), with additional growth in Black and Asian populations (source: 2008 US Census Bureau Report) Receptivity to advertising:Asian women are the most affluent and educated of all ethnic groups covered. They also are particularly active shoppers, affording companies an opportunity to create targeted marketing campaigns that promise a significant return on investment. Some 51% say they (Asians) remember advertised products when shopping, compared to 33% for all.Black women are shown to be more likely to pay attention to commercialsWhite women are shown to be more likely to notice ads on billboards(Source: Mintel Report – Soup) Influencers:Diet programs – Weight Watchers, a relationship with whom we will explore later, and other diet programs can provide guidance on use of soup product to manage and reduce weightGeneration Z – only age demographic still experiencing growth as they are the Millennial generation, can impact purchase choices much as a child in a shopping cart saying “I want that” (source: Mintel Report – Soup)
- Selection Criteria:Flavor is by far the deciding factor, with price and health following, and brand coming in a distant fourth. These findings are consistent across both gender and age groups. (Source: Mintel Report – Soup). Primary Research:100 respondents, with demographics consistent with industry findings (60% of respondents are women)Very broad stretch of Passive category (those rating 7 or 8)Results reinforce industry findings from Mintel – negative net promoter score indicates that purchasers are brand agnostic
- Black and Hispanic populations shows an above-average interest in chicken, noodle, and vegetable-based soups Hispanic respondents are more likely than non-Hispanics to compare themselves to other women all the time, often feel lonely, feel pressure to look younger than they are, feel pressure to lose weight, and dwell too much on their mistakes. Higher obesity rates than Caucasians, a patriarchal society, and speaking English as a second language may be some of the factors that exacerbate these feelings Black, Asian, and Hispanic populations show an above-average interest in seafood soups - Source: Mintel Report: Soups – US – 2008
- 5 lines of soup, variety of flavor and health options, 74 SKUs total3 established lines that are positioned on tasterecent lines positioned on health = reduced sodium (introduced in summer 2006) and light (summer 2007)—increased health consciousness of US populationBreakdown of Progresso sales by product line in November2007Light gained 12% of Progresso’s sales in just 5 monthsPartnership with Weight Watchers$100 million in sales in first yearExpanded to 11 SKUs in September 2008
- Grocery stores account for the majority of all soup sales. Whereas drug stores, do not pose a threat to food stores’ soup sales, mass merchandisers now account for almost a quarter of all soup salesGiven rising prices in energy and consumer packaged goods as well as the nation’s current economic condition, consumers will continue to value all-in-one shopping.Soup sales via mass merchandisers, along with other food categories are likely to increase.
- TO DETERMINE DISTRIBUTION MARGINS : Obtained 10K filings from General Mills, Supervalu, Kroger, and pulled the reported Net Sales and Cost of Sales. Determined the gross margin as a percent of net sales and used these margins as the gross margin for one can of Progresso soup.Starting with $1.77 for one can of Progresso soup, determined the unit cost for the retailer, distributor, and General Mills using % gross margins calculatedOn average.General Mills / Progresso – Sells soup at $1.05 / a can - 37 Cents / CAN proft. Distributor / Retailer – 72 Cents / CAN
- General Mills is a strong company that is able to successfully pinpoint and leverage new food industry trends using ideas generated within the company as well as those generated independently but Their growth has resulted in cannibalization from the introduction of too many skus, which hurts their ability to increase their market share, particularly when competing against campbell's, which has 50% of the current market. There are still opportunities for growth. The contunued marketing of Progresso as the healthy option will solidify their place in this sector for years to come. There is also the option to market soups aimed at specific ethnic groups based on cultural preferences. these strategies of course have risks Campbell's has recently been expanding into Progresso's territory with their select and chunky soup lines. And private labels, which have been experiencing the most growth in the canned soup market, may further erode Progresso's market share in these difficult economic times. Lastly, large scale distributors such as Walmart will exert pressure on General Mills as they continue to grow, forcing General Mills to comply with pricing demands that eat into ther margins.
- 1 Wall St. Journal. “US Prime Rate History”. (trailing five year average of prime rate, using data from 2003-2008) http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm2Mintel:Soup – US – September 2008Method:Calculated the market share of Progresso soup (33% of RTS, see 2007 data from Table 1)Using the projected and forecast data for total RTS soup sales over 2008 – 2013 found on Mintel, extrapolated the projected sales of Progresso over the same time span (Table 1, Column 3) as a fixed percentage of total RTS soup sales using their market share percentage from 2007 (ex. in Table 1, Row 2: $1,627,000,000 x 0.33 = $538,000,000 projected Progresso sales)For each year, calculated projected gross profit for Progresso from projected sales of Progresso using the margin analysis described earlier (see previous slide and Table 2)Placed all projected gross profits per year (i.e. the projected cash flows from Progresso for years 2008 – 2013) in time lineConsider 2008 as year 0.Calculated the Net Present Value of all projected cash flows at r = 6.40% per year (the trailing five year average of prime rate from 2003 – 2008) as of year-end 2009.Assumptions:cash flows (i.e. projected gross profit) occur at end of calendaryearprices of soup stay constant Progresso’s market share stays constantconsumer Sales at current prices General Mills, supplier, and distributor margins all stay the samePrime year rate is the appropriate interest rate measurement for Trailing five year average of prime rate (2003-2008) is representative of the average of prime rate (2009-2013)